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Chapter 13 Accounting for Government Grants andDisclosure of
Government Assistance
1. Objectives
1.1 Define government, government assistance and government
grants.
1.2 Explain the principles and methods of recognition for
government grants.
1.3 Explain the treatment of government assistance.
1.4 Describe the disclosure requirements of government
grants.
R e l a t e d t o
n c o m e
R e l a t e d t o
! s s e t s
D i s c l o s u r e
" o v e r n m e n t
" r a n t s
" o v e r n m e n t
! s s i s t a n c e
R e c o g n i t i o n
D e f i n i t i o n
2. Definitions
2.1 DEFINITIONS
#a$ Government refers to government, government agencies and
similar bodies
%hether local, national or international.
#b$ Government assistance # $ is action b& government
designed to
provide an economic benefit specific to an enterprise or range
of enterprises
qualif&ing under certain criteria. "overnment assistance for
the purpose of this
'tandard does not include benefits provided onl&
indirectl& through action
affecting general trading conditions, such as the provision of
infrastructure in
development areas or the imposition of trading constraints on
competitors. #
(13)1
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irrelevant!
(") Accounting treatment o government grants
3.3 *here are t%o methods %hich could be used to account for
government grants, and the
arguments for each are given in /!' 20.
#a$ #apital approac$%credit the grant directl& to
shareholders interests.
#b$ Income approac$%the grant is credited to the income
statement over one or
more periods.
3.4 /!' 20 requires grants to be recognied under the income
approac$&i.e. grants are
recognied as income over the relevant periods to match them %ith
related costs %hich
the& have been received to compensate. *his should be done
on a s&stematic basis.
Grants s$ould not& t$ereore& be credited directly to
s$are$olders' interests!
3. t %ould be against the accruals assumption to credit grants
to income on a receipts
basis, so a systematic basis o matc$ingmust be used. ! receipts
basis %ould onl& be
acceptable if no other basis %as available.
3. t %ill usuall& be eas& to identif& the costs
related to a government grant& and
thereb& the period#s$ in %hich the grant should be recognied
as income, i.e. %hen the
costs are incurred. here grants are received in relation to a
depreciating asset, the
grant %ill be recognied over the periods in %hich the asset is
depreciated and in the
same proportions.
3.5 EA*+E ,
678 9o receives a government grant representing 0: of the cost
of a depreciating
asset %hich costs ;40,000. o% %ill the grant be recognied if 678
9o depreciates
the asset
